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Money Market Funds: So Big in Japan, They’re About to Play Budokan

By

Matt Phillips

Jul 26, 2012 11:37 am ET

U.S. money market funds continue to shift their lending away from European banks. Fed up with exposure to overleveraged, sclerotic economies of Europe and its financial systems, they’re moving en masse to the overleveraged, sclerotic economy of Japan and banks there.

Since May 2011, when money market funds began shifting their money away from European banks, they’ve nearly doubled their exposures to Japan, according to an analysis published today by Fitch Ratings.

The interesting thing here is how the money market fund moves show that the European debt crisis really isn’t about debt. Debt itself doesn’t scare off investors. If it did, the wouldn’t be doubling down on Japan, which has a debt-to-GDP ratio of roughly 230%, according to Moody’s. Or even the U.S., which had a not-so-hot publicly held debt-to-GDP ratio of 88% in 2011.

Debt itself doesn’t scare investors off. But debt, coupled with massive uncertainty about the survival of the currency, financial system instability and a pan-European political system that seems unable to deliver any measures that will help the economy, now that’s another story.